Archives for December 17, 2012

The Case for a $1 Bottle Deposit Law

Funds from Harrisburg for municipal recycling programs have been declining in recent years, so it’s important for greens to start thinking about ways PA could increase recycling rates with less spending.

My favorite idea is a bottle deposit law. In a handful of states, they charge you 5-10 cents for your soda or beer bottle as a deposit. To get the deposit back, you drop the bottle off at a recycling center.

The idea is to encourage people to avoid throwing their bottles in the landfill. If people throw the bottle away, they lose the money. If they recycle it, they get the money back.

This is not a tax. Nobody’s violating the Grover Norquist pledge passing a law like this. If you turn your bottle in to a recycling center, they have to give you the 10 cent deposit back. In theory, Grover Norquist can save all his bottles, turn them in to the recycling center, and avoid feeding the Beast any new tax revenue.

In practice, the 10 cent deposit is too small to be of much interest to most beer and soda drinkers, so most people don’t bother to hoard their bottles for recycling. The people paying the deposit are mostly not the people who are collecting the deposit. The people who actually collect the deposits are low-income folks who go through other people’s trash, collecting large tranches of bottles from their neighbors and area businesses to turn in for a cash reward.

Now, because of the low deposit fee this is not a very productive use of time for most workers, even very low-skill workers. If there’s a 10-cent deposit for each bottle, you need to collect 500 bottles just to get 50 bucks. That’s a lot of work for very little payoff.

Contrast that with India, where Hannah Green says collecting recyclables and selling them to recycling firms is a relatively good paying job compared to other opportunities for low skill workers:

Katherine Boo’s recent book related to the subject, Behind the Beautiful Forevers, went deeper, exploring the mechanisms of entrepreneurship and exploitation in India. However, there is also a more positive side to this story that often goes uncommented on. An efficient recycling system has a long-term positive effect on society as a whole, and is also something that North America and Europe generally lack. That is a significant part of what the trash economy in India is- an informal recycling system.

Estimates suggest that between 56 and 70 percent of Indian recyclable material actually gets recycled, compared to 30 percent in Europe and the United States. This is because in India, the informal trash economy is highly efficient, and generates a surplus, whereas in rich countries dealings with trash can be seen as a market failure. While Indian government dealings with trash are highly inefficient, a significant portion of the informal workforce-about 90,000 people in Delhi alone — are eager to get their hands on the growing supply of trash so that they can sell it to recycling firms for profit.

The informal trash economy subsidizes the less efficient formal sector, thus benefiting taxpayers as well as the environment. While many of these workers live in very poor conditions, most of them still earn more than the minimum wage, some significantly so.

To make participation in America’s informal recycling sector more lucrative, states should consider making their bottle deposits considerably higher. Instead of 5 or 10 cents, what if states slapped a $1 deposit on every glass or plastic bottle?

Turning in 1000 bottles would fetch you $1000. At the margins you’d see more soda drinkers hoarding their bottles and turning them in, since it would be more worthwhile to expend the effort to get the money back.

But more importantly, the higher payoff would make wages in the informal bottle collection sector competitive with other low-wage jobs. A few different progressive goals would be well-served by this.

For one thing, we’d have higher recycling rates. Creating a decent profit opportunity for people to collect recyclables would result in fewer recyclables ending up in the landfill.

It’s also a progressive transfer of money from people who spend a lot of money on soda and beer to people at the bottom of the income scale.

By adding to the price of soda and beer, the bottle deposit would function in much the same way as the Pigouvian taxes some people want to levy on those products.

One could also imagine a high enough deposit reward putting upward pressure on wages in other low skill service jobs. In a world where people can earn $500 a week collecting 500 plastic bottles, low-wage service businesses are under some pressure to raise their wages to compete with wages in the informal recycling market.

Allentown’s Apartment Shortage

Randy Kraft at WFMZ had a useful piece over the weekend on the increased demand for apartments in the three Lehigh Valley cities. There’s still no data on what the actual rental vacancy rates are, but the article is basically describing a housing shortage. One interesting finding was that the number of rental units has increased in Allentown, even though very few new apartment buildings have been constructed.

This is exactly what you’d expect to see under housing shortage conditions: people seeking out squalid illegal living arrangements in basements and bathrooms by the hundreds, and developers converting single family homes into rentals:

The city has more than 25,000 known rental units, according to David Paulus, director of building standards and safety in Allentown […]

Paulus recently reported to City Council that the number of rental units increased by nearly 1,000 in the last year. That is a higher-than-average annual increase, said Moore […]


On Dec. 4, Paulus told City Council: “We have been very successful at finding illegal units. We found over 300 illegal units this year.”

Paulus said more than 400 illegal apartment units were found in 2011. He hopes that number is going down because landlords are getting the word that they can’t put people in basements, attics, garages and other unsafe places.

Basements, attics and garages were not constructed for human habitation, explained Moore.

Now we’ve known for a while that Allentown, and the Lehigh Valley more generally, have a shortage of rental housing because the Philly Fed reported on this last year. Nationally, rents have been rising faster than incomes, and it would be surprising if we didn’t see this trend also playing out in the Lehigh Valley.

The demand for rental housing has been increasing but few new apartment buildings have been constructed, so folks on the low end of the income spectrum are opting to live illegally in bathrooms instead of renting studio and 1 bedroom apartments. Owners of single family homes are seeing a profit opportunity to rent them out, since there is more demand for apartments than single family.

The solution is clear: it’s time to build more apartments in the LV cities.

Increasing the supply of market-rate apartment units will push down the median rent for a 1 bedroom apartment, and allow more people to afford a legal apartment instead of an illegal conversion. Building more apartments will also reduce some of the market pressure to convert single-family homes into rentals, leaving some lower-priced options for people who actually want single-family.

And as more market-rate apartments get built, some higher income renters will trade up for better apartments, and this will free up their old apartments for lower income renters. Over the years, as better apartments get built and this filtering process continues, the average quality of the apartments low-income people can afford will improve.

LVCI thinks that this trend is a problem, but I disagree. Many cities manage to have dynamic, successful economies with a high proportion of renters. In fact, there’s every reason to believe that Allentown’s economy would be stronger with lower rents. Across the country, housing and transportation costs are eating up a larger and larger share of people’s income, and not just poor people, but also moderate-income people.

People who are interested in reducing inequality and raising living standards need to think harder about ways to reduce the prices of people’s big expenses, not just ways to boost paychecks.

I read lots of people who say they’re concerned about whether the service sector jobs created as a result of the NIZ tax district will be good-paying jobs, but that’s only half the issue. The other half is whether the development will increase the cost of living and getting around in Allentown through higher land prices (rents), traffic congestion, etc.

If people get $8-10 an hour working in restaurants, but their housing and transportation costs eat up 60% of their pay, that’s a “bad job”. But if Allentown can bring rents in line with construction costs through policies that promote rental housing construction, and lower transportation costs (how about a free trolley bus loop paid out of a half-mill land tax increase on downtown land?), then maybe combined housing and transportation costs can be held down around 40% of income, freeing up more disposable income for low- and moderate-income residents to spend in the local economy.

Why Government Spending Increases Under Term Limits

Ed Lopez explains:

  • Term limitation exacerbates fiscal commons problems within the legislature. Because term limits decrease the variance of tenure within a legislature, the relative power of party leaders and ranking committee members will decrease. As the distribution of power flattens, this increases the proportion of legislators who possess access rights to budget items, thus decreasing the control rights that a relatively few leaders and committee chairs would otherwise have. When everyone can get their pet project through, more projects get through.
  • Term limits shorten legislators’ time horizons. If legislators use their time in office to advance their careers, and if the career-value of being in the statehouse increases with the support of more spending, then term limits can impart an incentive to spend more and sooner. For example, rank-and-file legislators support more spending to secure leadership positions, and leaders let more projects through in order to quickly build durable coalitions.
  • Term limits might lure legislators into very wasteful forms of pork spending, according to this paper by Michael Herron and Kenneth Shotts:

Term limits can, in some cases, inhibit voters from selecting representatives who deliver particularistic benefits, and, in these cases, term limits reduce pork spending. On the other hand, when pork is extremely socially inefficient, representatives who want to deliver pork to their districts have incentives to refrain from doing so to reduce future pork in other districts. In this scenario, term limits actually prevent legislators from promoting future spending moderation and thus paradoxically increase pork spending.

Local Goverments Should Pay Tax Collectors Salary, Not Commission

Gerald Cross of the PA Economy League says paying tax collectors commission is a rip-off, and local governments should switch to paying them salary.

Municipalities and school districts only get the opportunity to change how they compensate tax collectors once every 4 years, so you need to do this before February 15, 2013 or else you have to wait until 2017.

Under the commission method, tax collectors receive a percentage of the bill. Thus, the more tax owed, the more the tax collector receives. An increase in the assessed valuation of a property or in the millage rate produces increased commissions, but the tax collector workload remains the same. Also, large tax bills generate large commissions, yet they are no more expensive to handle than small ones. In contrast, not only are salary and per-bill compensation more logical and more in keeping with the work performed, they tend to be less costly as well.

A PEL 2003 study of boroughs and townships in 12 central and eastern Pennsylvania counties found that the 267 municipalities that used commission-based pay spent 2.81 percent of the taxes collected for the service. Tax collectors earning a per-bill fee received 1.06 percent of the taxes collected, while those working on salary made 0.79 percent of taxes collected.

As a result, those municipalities paying commission had an average cost of compensation that was almost three-fourths higher than the overall average and about 31/2 times higher than the average for those that paid a salary.

Regardless of the method used, governing bodies must act now to reduce costs by changing compensation methods, capping commissions, lowering per-bill fees and salaries or freezing compensation at current levels, among other options. School districts in particular have been successful at shrinking costs, but over the years many other jurisdictions have saved hundreds of thousands of dollars individually by altering payment methods.